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Despite the debilitating effects of the covid-19 quarter that sent many a company hurtling into losses—brought on by factory wide shut down and a marked slowdown in demand—Honda Atlas (PSX: HCAR) has emerged fairly unscathed and has since witnessed a solid recovery. In fact, the company sunk into losses long before covid—slipping into negative zone during the quarter of Oct-Dec19 and continuing to show losses two quarters thereafter. Since then, earnings have more than revived. In its nine-months for the current financial year, the company raised earnings by 27 percent even though sales have remained more or less the same as last year in the period under study.

After hitting zero sales in April, it seems the automobile market has roused from its year-long slumber bolstered by lifting of the lockdowns, a decent demand recovery and much cheaper car financing due to reduced policy rate. Though, Honda and other automakers have raised prices (it shows on the income statement as well—estimated revenue per unit sold in 9M ending Dec-20 shows an increase of 17 percent year on year), it seems customers are aplenty for Honda buyers solidifying its brand loyalty in a market that is fast becoming inundated with new players.

But it helps that many vehicles are not in direct competition to Honda’s variants—from DFSK’s Glory 580 Pro to Kia Sportage to Hyundai Tucson, to MG HS to the upcoming Proton X-70—most are SUVs or crossovers which for a sedan buyer—a Honda no less—may not tilt favors too far off.

Honda ensured to keep a tighter than usual control on overheads (2% of revenue against 5% last year), with a very insignificant share of revenue going toward finance costs, reduced further due to lower bank rates. Though the company has been raising prices, its cost per unit sold also increased (estimated 20%. note: this is an estimate since the units sold number only includes locally assembled vehicles) during the nine-months. Higher vehicle prices for consumers apparently have not offset the increasing input costs including dollar-valued CKD kits which in times when the rupee weakens become ever more expensive. Of course, this alludes to much lower localization than one would expect from a car assembler operating in the industry for so many decades.

Other income contributed 23 percent to the company’s before-tax earnings in 9M (against 20% last years) which indicate advance payments for car models during Dec. Improving demand has also reduced inventories and as a result, inventory costs for the company, though supply shortages due to port congestions may have added to the costs. Though net margins remain level at 2 percent which leaves a lot to be desired, the company seems to be on a positive growth path, despite new cars coming into the market and despite the company selling much more expensive cars now than ever before.


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